Consultancy’s Self-Employment Tax Appeal Offers Investor Shield

Investment fund partners could see major income tax benefits if a Houston consulting firm convinces the Fifth Circuit in oral arguments Thursday that its partners qualify for a self-employment tax exemption.

Sirius Solutions challenged a $7.37 million increase to its net earnings from self-employment, arguing the US Tax Court applied too stringent a test for deciding when members of a limited partnership must pay Social Security and Medicare contributions on their distributive shares of income.

Consultancies, hedge funds, and other investment firms are commonly organized as limited partnerships formed under state law. Unlike a general partner, a limited partner typically ...